China Startup Funding Ecosystem: The COVID-19 Aftermath

The first half of the year 2020 has proven to be a rollercoaster ride for businesses and individuals worldwide. Everyday life and global economies have undergone major disruptions due to the COVID-19 pandemic. Businesses, especially startups, have found it difficult to sustain themselves due to the countrywide lockdowns and travel restrictions. China was hit first with the virus and many industries were put under lockdown and suffered major losses. However, the country is bouncing back and the China startup funding scene is recovering steadily.  Many industries in China have continued to be resilient against the collateral damage of the coronavirus. Other business sectors that bore the brunt are starting to bounce back owing to their expansion strategies. Venture capital funding in China’s startups is also reviving as the crisis is waning rapidly from the country. 

How Has COVID-19 Affected China Startup Fundings

During the lockdown, China witnessed a drop of around 50-60% in Series A and further rounds of funding. The numbers were in sharp contrast as compared to the China startup funding scene in December of 2019. Parallelly, venture capital investments across the world declined significantly by 20% during the first 2 months of 2020. The pandemic affected numerous industries such as travel, retail, and hospitality. Many startups found themselves out of business and unable to sustain their operations due to a lack of funds. While some resorted to lay-offs and furloughs, others searched for options to secure funding to stay afloat.

The Rebound Of China Startup Fundings 

While many industries were under distress, investments in industries like technology, robotics, education, healthcare, and logistics continued to boom. Data shows a significant rise in capital funding in China. Certain startups were able to score large rounds even during the coronavirus lockdown in the country. Startup Genome stated that the number of Series A+ fundings in March of 2020 is twice the figures from February. The primary reason behind this is China’s rebound to normalcy and prompt containment of the virus. To boost businesses back, many investors have now started to invest large sums of money in various startup ventures.  Zhejiang-based AISpeech, which specializes in voice interaction solutions, has recently closed a 410 million yuan (US$ 58 million) Series E round led by CTC Capital. Additionally, Bytedance co-led a 100 million yuan (US$ 14.1 million) Series B round for Narwal Robotics which manufactures autonomous cleaning robots. Another Chinese startup – Keenon Robotics, a Shanghai-based producer that manufactures robot waiters successfully closed Series B round in March for 200 million yuan (US$ 28.8 million). Since the impact of the COVID-19 pandemic has been inconsistent, businesses that are business-oriented have been hurt the most. Businesses that have focused on the needs of consumers have managed to secure fundings. Such startups are also able to continue on their path to global and local expansion. Startups that offer products and services for home-based consumption are winning the interest of investors. Investors are looking for businesses that are profitable even amidst the coronavirus crisis. 

The China Startup Funding Scene: Moving Ahead

Many startup companies that faced severe cash crunch during the COVID-19 lockdown in China are now on a recovery path. The pandemic has led to an acceleration of digitalization and an increase in demand for delivered-at-home services and goods.  Since there is no complete end to the crisis in sight, investors are being extra careful in selecting the sectors to invest their money. This is leading to a shift in the way startups operate. Thus, startups with the ability to adapt to the new ecosystem are coming out as investor-favorites.  This is because investors wish to put their money in startups which have a strong workforce. They are looking for businesses with a strong workforce that can power through such uncertain environments. For startups, the pandemic has proven to be a wake-up call. Founders who relied heavily on spending their capital to sustain the business have to reimagine their business strategies. This is especially important for businesses that wish to expand their operations globally. Cost-saving measures have become crucial for startups to survive. Startups have the sole objective of scaling up and may sometimes go overboard with their spendings. However, now startups need to be more efficient with their funds. The China startup funding scene is going through a tectonic shift. Startups now need to adapt to new market conditions and revise their strategies. Startups need to focus on products and services which are demanded by consumers. Without this, a startup may find it difficult to grow and expand its operations. It will run out of money even after securing large funding rounds if it is not careful with its spendings.

Can PEOs Help Startups?

Professional Employer Organizations (PEOs) do more for startups than just help them with their HR responsibilities. PEOs can also help startups save money by helping them find the right channels to save hiring-related costs.  Associating with a PEO like New Horizons Global Partners can help a startup in effectively managing its employment-related costs and risks. A PEO can also support a startup in identifying cost-efficient channels of entering a foreign market. From employment benefits to taxation compliances, from setting up a legal entity to managing employees remotely – a PEO can help a business in multifold ways. When it comes to expansion costs, a PEO can help a startup understand a foreign market. It can also help in identifying profitable products or services and finding cost-efficient ways to establish a global footprint. PEOs like NHGP also provide services for the management of healthcare benefits, compensation, insurance, etc. They can also assist in payroll processing, labor law compliance, taxation compliance, recruitments, and terminations.

Conclusion

Investors do not like to associate with startups that are careless with money. They do not want to invest in startups which are unable to find the right channels to sustain and expand. Startups in China now need to rely on wiser options to expand and win the trust of investors. This also includes establishing a strong HR foundation for the business. To find out more about how PEO can help your business in China, please visit our services page

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